A chance for Lebanon

Implementing the Paris Agreement requires political will

In December Lebanon, alongside 194 other countries, was represented in Paris for what was expected to be another conference promising to mitigate pollution but delivering little in way of curbing the pace of climate change. After high profile conferences in Kyoto in 1997 and Copenhagen in 2009 failed to obligate countries to reduce pollution, the mood leading up to the Paris conference was for more good intentions and empty promises. Yet, surprisingly, after two weeks of talks the 195 countries agreed to reduce carbon emissions — it’s being dubbed the beginning of the end for the fossil fuel era — a move that could alter the economic landscape for fuel importing countries, like Lebanon.

But to reach the goals of the Paris accord, officially referred to as the Paris Agreement, and limit a rise in global temperature levels, political will is required. France’s foreign minister and chair of the Paris conference, Laurent Fabius, called the agreement a “historical turning point”. Other global leaders — United Nations officials and heads of state, even the Pope — have echoed this sentiment. The highest levels of international politics might, hopefully, drive momentum downward to the domestic level. Lebanon is already working to reduce its emissions largely through renewable energy projects, but the country will need various measures of legislation to continue forward. Can political will at the international level trickle down to Lebanon, or will the status quo of local policy making remain?

International financing

Where the Kyoto and Copenhagen conferences failed, Paris succeeded. The overarching result of the accord is an agreement to avert catastrophic climate change by limiting a rise in global temperature levels to no more than 2 degrees Celsius (with wording in the agreement urging the temperature increase to be limited to 1.5 degrees Celsius if possible) by the end of the century. To do so, countries agreed to transparent reporting of their emission reductions, to meet every five years to assess and modify their pledges so that the 2 degree (or 1.5 degree) goal stays within reach, and put forth a notion of collective responsibility — no more is there a stark distinction between rich and poorer nations (see L’accord de Paris explainer).

For the most part, this will require massive investment in renewable energy and energy efficiency projects that, simultaneously, would phase out fossil fuel use and reduce carbon emission. Wealthy economies, like the United States and European Union, have pledged to channel at least $100 billion annually to help poorer economies finance green projects.

Lebanon has already benefited from international financing and more help is expected as the likely momentum established with the Paris accord snowballs moving forward. The European Union granted 11.9 million euros ($13 million) to subsidize interest rates and increase payment periods for projects that fall under Lebanon’s National Energy Efficiency and Renewable Energy Action (NEEREA) plan — a financing mechanism for green energy projects initiated by the central bank. The World Bank channeled a $15 million loan through the International Bank for Reconstruction and Development to help manufacturers reduce emissions. Parliament met for a rare meeting in November 2015 to approve two loans that were set to expire — one from the European Investment Bank and the other from the French Development Agency. The loans account for some $40 million that will be invested in renewable and energy efficiency projects in 2016.

Vahakn Kabakian, climate change project manager at the Ministry of Environment and part of Lebanon’s delegation to the Paris conference, and Pierre el Khoury, director of the Lebanese Center for Energy Conservation at the Ministry of Energy and Water, both agree that international financing will be very important for Lebanon to reach its emission reduction contribution. They say that the availability of international financing will increase, not immediately but moving toward 2020 as momentum picks up. Naming a few donors as examples Khoury says, “We will be moving towards real money — Abu Dhabi Fund for Development, the European Investment Bank, the Asian Development Bank, the Sustainable Energy for All initiatives of the United Nations — will all have money to support and give loans. So, starting from the Paris accord and onward there will be money to be invested.”

Stimulus money

The bottom-up approach agreed upon in Paris to mitigate climate change places countries in the driver’s seat to implement renewable and energy efficiency projects. Kabakian points out that international money will help Lebanon move faster toward installing renewables and energy efficiency projects, but the primary chunk of financing is coming domestically. Available financing via Banque du Liban (BDL), Lebanon’s central bank, both Kabakian and Khoury agree, has made Lebanon a role model in the Middle East. Through several circulars dating back to 2010 and its subsequent stimulus plans the central bank provides, in theory, a $1 billion credit line annually to be invested in green projects through near interest‑free loans.

Since 2011, Khoury says, direct investment in renewables, energy efficiency and green buildings stood at $450 million. In early December 2015 BDL Governor Riad Salameh told a conference audience that the bank’s initiative had created 10,000 jobs and 270 companies, with the credit line financing some 325 projects. While the available credit has not been fully utilized, it is expected in 2016 that another $300–400 million will be injected, says Khoury.

BDL has, essentially, created a niche sustainable energy market. Businesses and factories, for example, have taken advantage of the financing mechanism to install rooftop photovoltaic systems. Some of Lebanon’s biggest banks are already involved in financing sustainable energy projects, Khoury says, and the hope is that more will join. “We still have [several] banks that are not involved yet but they will be in the near future. The culture is there,” he says, adding that “without the Paris accord it would have been tougher [but] now it will be easier for private investors to work with Lebanese banks – whenever they need money to invest in a renewable energy project they will have [more] choices, banks and financial institutions will have the money.”

Market segment

The Paris accord piqued the interest of many an investor at top banks and funds in the world’s financial capitals. The presence of top executives from financial institutions at the climate conference did not go unnoticed and the early indication is investment portfolios will shift toward the growing renewable energy industry. Goldman Sachs, an American multinational investment banking firm, recently said the global market size for renewables plus hybrid and electric vehicles was worth $600 billion last year.

There are both structural and legislative challenges that Lebanon must address to develop renewables and energy efficiency as a market segment. As part of the goal to reduce emissions by installing renewables and limiting dependency on imported fossil fuel, Lebanon will need to restructure its electricity sector. Redirecting the $2 billion that Electricite du Liban (EDL) receives annually to help cover the cost of generation — it pays only $25 per barrel with the treasury covering the difference — is a measure that director general of the Ministry of Finance, Alain Bifani, calls for. In a December interview with Executive, he said the subsidy needs to end because Lebanon can no longer afford it, even with the breathing room that current low oil prices provide.

The view from the Ministry of Environment’s Kabakian differs — removing EDL’s subsidy will make renewables much more cost effective if not cheaper. “We can make [renewables] cheaper and that’s what most developed countries do. If you really want to expand it, you need to make sure that it’s going to cost less.” The goal is to satisfy 12 percent of the country’s electricity needs by 2020 and 15 percent by 2030 through renewable sources — percentages based on Lebanon’s current 2,500 megawatts of EDL production plus private generator production. Khoury says that, so far, Lebanon has installed 21 megawatts of solar energy and expects another 50 megawatts to be installed in 2016. A large measure of Lebanon’s reduction in emissions will come not only from installing the type of megawatts Khoury mentions but also from decentralizing renewable energy production, and installing energy efficiency solutions, at offices and homes. For this, business engagement is key.

Developing a robust market segment will help Lebanon hold up its end of the climate change agreement, but the central bank initiatives are not enough. “[The market] will definitely plateau if the system doesn’t change. It’s a market and you can only sell a certain amount of [photovoltaic cells] that only a certain [number] of people think is beneficial. Some will look at a higher rate of return of income, for example, or less payback period. If you don’t provide that it won’t grow anymore,” Kabakian says. The central bank financing has incentivized the private sector with companies seeing the dollar signs align in their favor when looking at potential returns on investment over the long term. But renewable energy projects, from small to large, do have investment barriers that, even with subsidized loans, can carry an uncomfortable level of risk that might stunt market growth if left unchecked.

“With [the measures] we have currently [the market] will grow a bit — my analysis will be that it will plateau in a couple of years and that will be it. Either you need to have big investments taking place and then help the decentralized systems to grow at the household level, or this is it,” Kabakian says. Installing solar panels on rooftops of buildings is incentivized financially by the central bank but Lebanon needs to legislate a net metering scheme — a billing mechanism crediting renewable energy providers for feeding electricity into the public grid — to scale installation and decentralize small-scale renewable electricity production. Passing net metering legislation, Kabakian says, would exponentially increase the pace of decentralizing renewable energy.

Derisking decentralization is also an issue at the utility level because EDL does not generate enough electricity to provide 24 hours to the public grid. “Even if you have net metering installed, you don’t have electricity on your grid [so] you won’t be able to evacuate electricity to the grid. So not having 24 hours [of supply] hinders your net metering process but that’s also hindering us [from] getting to the 24 hours. This is part of derisking practically,” Kabakian says.

For large-scale renewable energy projects — wind and solar farms, hydroelectric — investors will need reassurance that EDL can uptake the produced electricity. So as long as there is no assurance, investors will calculate a level of risk pushing up the cost for renewables in Lebanon. Lowering the cost of installation and operation is key to attracting financing from foreign investors. It is even more important, says Kabakian, for donors channeling money as per the Paris accord. As Kabakian puts it, “[donors] want to get the most reduction per dollar invested. Reducing a ton of CO2 is cheaper in China than it is in Lebanon [so they will] go to China. [Whether] carbon is reduced in Lebanon or in China, the impact will be the same globally.”

On the side of energy efficiency, reducing Lebanon’s carbon emissions will be accomplished in the construction sector by requiring geo-thermal thresholds for new buildings — encouraged by the central bank initiative — but this necessitates legislation to force builders to meet standards. The environment ministry also has a plan to encourage, by financial incentive, individuals to swap their old gas guzzler for a new fuel efficient vehicle. This too would require legislation, both to regulate vehicle emissions and because the scheme would alter sources of revenue to the public coffer like Customs import and registration fees.

A spoke in the wheel

Meeting Lebanon’s contribution to emission reduction will require the government to approve the technical roadmap that has been prepared and agreed upon in Paris. Lebanon will also need smaller legislative bills to regulate vehicle emissions and require builders to meet green standards in new construction projects. The small incremental legislative changes do not seem to be much of a hurdle moving forward.

But structural changes will be. Years of deferring waste management solutions came to a head in 2015 when the government decided to close the Naameh sanitary landfill with no alternative in place — garbage has since piled up on city streets with the only options to toss it in open air dumps or burn it where it lay. Electricity production, too, is a decades old problem. For years, electricity infrastructure and EDL have been allowed to decay — the country does not generate enough electricity to satisfy demand so businesses and households must turn to private generators that belch toxic fumes into the air.

While these issues do not spell doom for Lebanon’s plan to reduce its emissions, they do demonstrate the country’s leaders’ complete neglect for the environment and disinterest in ventures that do not line their pockets. There is no political will to implement the structural changes needed for clean, sustainable solutions for waste management and electricity production because the financial motivations to do so do not currently align with the interests of Lebanon’s political class.

Lebanon has put the technical preparations to reduce emissions in place, Kabakian says, and when the political will is there, the plan will be implemented. Hopefully the momentum built in Paris will work its way down to the local level, so that Lebanon’s politicians prioritize the environment and ratify the climate change plan into law.